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Condos

Leasehold and Hawaii Real Estate Ownership

Who Owns the Land?

Hopeful real estate buyers from the Mainland reach out regularly to inquire about Hawaii condominium listings that seem too good to be true. Most widely utilized online home search sites don’t differentiate between leasehold and fee simple. Both ownership types are common in Hawaii and there is a major difference that affects the value.

I sold real estate on the mainland for 20 years and never heard the word “leasehold.” But in Hawaii, it’s quite common, especially among condominium properties. What’s not uncommon is for leasehold condos to cost 25% less than similar fee simple condos. So, what’s the difference?

Leasehold vs Fee Simple Condominiums

Masters Condominiums Ka’anapali

Fee Simple

The most complete and transferrable ownership in real property is fee simple. If you own a home or land on the mainland United States, you most likely own it “fee simple.” Simply put, if you own the land beneath it your condo, (or a percentage interest in the land), you own your property fee simple.

Leasehold

Leasehold ownership is a temporary right to hold property. You are leasing the land beneath you, and paying a rental fee to a landowner. In fact, with leasehold ownership, the property, including improvements, revert back to the landowner at the end of the land lease. Leasehold owners also pay a monthly land “rent” in addition to taxes and homeowner association dues.

Example:

One Maui condo community has both fee simple and leasehold condominiums for sale. Fee simple unit “A” is for sale at $378,000 with monthly homeowner fees of $1,278 and taxes of $240.

Just down the hall, leasehold unit “B” is for sale at $290,900. Monthly homeowner fees are $1,278 with taxes of $159 plus a lease payment of $324. This lease expires in 2039, at which time the condo becomes the property of the landowner. That’s right, you no longer own the condo.

In this scenario, unit “B” ownership will revert to the landowner in 2039 with no changes to the owner of unit “A.”

Montage Residences at Kapalua

Which is Right for You?

If you are retiring soon with the hopes of spending the rest of your life on the beach and leaving your property to an heir is not an issue, then a leasehold may be perfect for you. Just make sure the leasehold lasts long enough to meet your requirements.

Be sure and ask up front, “Is this a leasehold or fee simple?” In any case, your Hawaii real estate professional is uniquely qualified to guide you.

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SBB

September 13, 2018

If it’s the land under the condo, the ‘down the hall’ variation doesn’t make sense
Logic says is should divide per lot of land…but I guess if you own the land, you can perhaps decide how you will allow the buildings to be divided? Strange

Cam

September 13, 2018

This doesn’t begin to cover the devaluation of a leasehold property the closer the buyer gets to the end of the lease. Yeah, buy that condo for $290K now with the lease ending in 2039, and see what it’s worth in 2025 or 2030. It becomes a tougher sell the closer you get to the leased end/renewal date.
On the other hand, a fee simple property usually increases in market value over time… well, unless the market crashes. Doh!

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